The Reserve Bank of India claims that the old ban has long been invalid. How much impact will it have on the crypto industry?

Source: Daily Planet

summary:

• The Reserve Bank of India (RBI) has told banks not to rely on an earlier circular that said they should not work with crypto exchanges.

• Indian crypto industry executives said the latest notice is unlikely to convince major banks to work with them.

The Reserve Bank of India asked banks not to cite its 2018 circular that prohibited them from servicing crypto firms, reminding them that India’s Supreme Court had lifted the ban last year.

In an April 2018 notification, the Reserve Bank of India said banks cannot provide services to “any person or business entity that handles or settles virtual currencies.”

In March last year, the Supreme Court of India ruled that the RBI’s circular was meaningless and that banks could trade with crypto companies if they wished. Despite this ruling, major Indian banks continue to ban crypto trading. According to U.Today, in the past few weeks, banks such as HDFC Bank and SBI Card have officially warned their customers not to trade in cryptocurrencies, citing the RBI’s 2018 circular.

Indian crypto exchanges have chosen to continue challenging the Reserve Bank of India. On Friday (May 28), several exchanges threatened to take the central bank to the Supreme Court after sources said earlier this month that the central bank informally asked banks to cut ties with crypto businesses.

Finally, the RBI has met the needs of Indian crypto exchanges.

The RBI said in a notice on Monday (May 31) that "in view of the Supreme Court order, the notification is no longer valid from the date of the Supreme Court judgment and cannot be cited." It also allows banking institutions to conduct due diligence on customers involved in digital assets.

Sidharth Sogani, CEO of Indian crypto intelligence firm CREBACO, told Decrypt that Monday’s notification fulfilled a long-overdue formality. He said the RBI was trying to “avoid legal complications arising from the threat of litigation.”

While the RBI circular said banks could serve any customer who met the criteria, it stopped short of encouraging banks to work with crypto firms, and there was no indication of what changes would come with Monday’s circular.

Zakhil Suresh, founder of crypto trading simulator SuperStox, said, “Managers at multiple banks told me that they do not allow crypto trading based on their internal compliance policies, not because of the RBI.”

Suresh claimed that banking policies have hurt the industry. “Even employees’ bank accounts have been frozen just because they received their salary from a crypto exchange.”

Sogani expects that smaller banks may now allow services for crypto clients — which is better than nothing. However, he said, smaller banks often do not offer the complex APIs that crypto exchanges require.

However, without major banks willing to work with crypto companies, crypto exchanges will continue to be mired in the quagmire.